Turning bookshelves into playlists: Book app ‘Shelfie’ gets social

The vast majority of physical books I own are mostly only good for collecting dust once I’ve finished reading them. Despite that, I’m happy to devote space for them to sit on bookshelves in my office — except of course when I’m traveling and wish I could add a few of them to my tablet without re-purchasing at full-price.
The solution to this problem, according to Vancouver-based startup Shelfie, is to snap a photo of each shelf and allow its mobile app to automatically identify all the titles available as ebooks — some of which can be purchased within the app at a deeply discounted rate (81 percent on average). For this purpose, Shelfie makes for an excellent utility that some have likened to a Shazam for books. Although, it isn’t great when it comes to actually converting your print books into digital book in-app purchases, due in large part* to licensing complexities with publishers. It’s nudged Shelfie into becoming an app that only occasionally gets used, despite seeing regular user growth of about 15 percent per month, the company told me.

Print-to-ebook service Shelfie's new social features.

Print-to-ebook service Shelfie’s new social features.

With the latest update, however, that may soon change.
Shelfie aims to evolve into a service that wants to celebrate your personal library while adding to it. Now when you snap a bookshelf photo, it can be shared to a public feed on Shelfie. Other Shelfie users can follow your activity and vice versa. You can also rate books, or just share when you’ve added a new one to you library. Clicking on a book title gives you some info about it, and provides a list of other folks that also own or have read it. Overall, the new social features are pretty standard, but perhaps the most valuable aspect is that you’re bridging the divide between your print and digital bookshelves.
“Essentially, what we’re doing is transforming bookshelves into playlists, adding that element of socialization to books that helps uncover those hidden gems,” Shelfie cofounder and CEO Peter Hudson said in an interview with Gigaom. “A shelf of books says a lot about what you like to read. We wanted to make that more accessible to the world.”
My "Shelfie" devoted to Warren Ellis.

My “Shelfie” devoted to Warren Ellis.

Theoretically, Hudson makes a good point. I’d imagine most people organize their bookshelves with some degree of methodology. For instance, I have an entire shelf dedicated to author Warren Ellis, and it would make sense for folks with similar tastes to discover a little-known Ellis title upon viewing my “Shelfie” photo. Then again, I also have nearly an entire shelf devoted to stuff I haven’t gotten around to reading yet, which isn’t obvious upon casual glance and may prove useless to strangers.
Although Shelfie generates revenue from referral fees for business it sends to outside sellers like Apple’s iBookstore or Amazon, Hudson explained that the startup isn’t competing with well-known players like GoodReads (even allowing new users to sign up with their GoodReads account), which is focused on detailed book reviews and discussion. The reason, he added, is because reviews are a good way to drive book sales, or for those looking for thoughtful analysis of a particular title. Yet, they aren’t great at “socializing books.”
Shelfie also isn’t concerned about competition from unlimited ebook subscription services such as Scribd or Kindle Unlimited, nor does Hudson believe business strategy of those unlimited services to be favorable to the readers themselves.
“It’s the gym membership model. It’s great, as long as no one comes. Gyms make money because people sign up for a membership January 1, go three times, then never go back but forget to cancel their subscription,” Hudson explained. “Everything works really well so long as people only read two books a month. The problem is, the people who converted (to unlimited subscriptions) read way more than that because it makes economic sense to them.”
One way subscription services compensate for the increased licensing costs is to surface lesser-known, or self-published books that have lower licensing fees, Hudson said. “When you think about the economic model for something like Scribd, they actually don’t want to push the good stuff to you, because those are books from the big publishers that cost the most.” Such a practice would obviously makes it harder to find something you want to read.
“The other challenge for unlimited subscriptions is that there’s no effective way to browse online (that compares with a physical store). Everyone’s done it. You defocus your eyes a bit while wandering down the aisles of a bookstore until something jumps out at you to stop and dig in. That experience doesn’t exist online. You can put about four book covers up on a tablet screen. Any more than that and it becomes too small to read the text, the detail of the artwork.”
The takeaway, from Shelfie’s perspective anyway, is that people will be buying physical books for a long time despite the availability of digital versions. That, and people want options for how to read the book they own, which the startup is happy to oblige.
The new social tools are a huge portion of Shelfie’s strategy for success, but ebook sales are still at the forefront. However, now people have a reason to stay active on Shelfie while it signs more publishers (it already has agreements with 750, including two of the “big 5,” MacMillan and HarperCollins). Additionally, my old books are finally doing more than accumulating dust.
* Lack of selection due to licensing is the biggest culprit, but the process of converting print to digital is also kind of a pain. To get a discounted ebook version, you have to prove you own the print book by snapping photos of a book’s barcode, cover art, and copyright page with your handwritten name in all caps. Although, considering you’re getting the ebook version so cheap (or free), it does seem worth it to jump through hoops.

A eulogy for Oyster, the indie ebook startup not afraid of Amazon

Ebook subscription service Oyster is dying, and it’s taking my hope of avoiding Amazon right along with it.
The reading service debuted in 2013 and raised $14 million in January 2014. Now most of its team has reportedly joined Google, where they will work for the Play Books division of Google’s series of content-focused services. The team will begin to “sunset the existing Oyster service” some time in the coming months.
That’s a shame. Oyster was easily the best reading software across multiple platforms, and it was a frontrunner in the effort to find a “Netflix for books” that could make reading as convenient as binge-watching a television series. It was also one of the only companies that made it easy not so support Amazon.
As I wrote when Oyster added a storefront to its mobile apps earlier this year:

My job as a reporter is to be objective, within reason. But as a consumer, I would prefer not to support a company that treats its workers like cogs in a machine, whether that’s by screwing them over with non-compete agreements or trying to ensure warehouse workers aren’t paid for being frisked when they clock out.
Oyster won’t completely replace Amazon. I doubt it plans to open warehouses around the world and work to replace all of Amazon’s services by itself. Yet this new storefront shows that Amazon isn’t unassailable, and gives people looking to spend their money somewhere besides Jeff Bezos’ monolith another option.

The desire to avoid supporting Amazon only increased earlier this year, when the New York Times revealed how its white-collar workers are treated. Combine that with continued problems in the company’s warehouses and you have a fairly good reason, at least in my opinion, to find other businesses to support.
I had another reason to use Oyster: It was better than Amazon’s Kindle app.
Part of that comes down to the lack of stuttering — the Kindle app likes to lag even when you turn just a few virtual pages — and other performance issues. It also felt better to read via Oyster because it offered “themes” with a variety of background textures instead of limited control over the typeface it used. Oyster
Then there was Lumin, an Oyster feature that debuted earlier this year to make it easier for people to read in the dark. Reading on an iPhone at night can be hard because of its backlight; Lumin went a long way toward reducing that light’s effect on me, which nixed the only reason to use my Kindle before bed.
Now all that is going away. Oyster is going to shut down, and its team will likely be tasked with improving Play Books, a service I don’t (and won’t) use. Independent apps like Readmill have disappeared, and while I’m willing to give Scribd a try, I doubt there’s going to be anything to do but go back to Amazon.
Sure, I could sign up for iBooks. But part of the reason I liked Oyster was that its app was available on multiple platforms, and iBooks is limited to Apple devices. While I’m currently inside that company’s ecosystem, there might come a time when I decide to buy an Android tablet or a Windows laptop.
This won’t be a hard transition. Books are often cheaper on the Kindle, Amazon’s unlimited service has some more options than Oyster did, and now I could purchase a new Kindle Paperwhite to read while I’m in bed. Then I might as well buy some physical books from the company, sign up for Amazon Prime to enjoy free two-day shipping and access to Prime Movies, and go from there.
I’m sad Oyster is dying. I’m sadder that Amazon is right there waiting for me with open arms — and just how easily it will be to fall into them. No wonder the company doesn’t seem to worry too much about the backlash to how it treats workers: Using it feels inevitable, like shopping at Walmart or eating fast food. No matter how long you avoid it, it’s going to be right there waiting for you.

One big way that book publishing startups can succeed now

It’s been more than seven years since the introduction of the first Kindle. Ebooks market share seems to be stabilizing at around one third of total books sold in the U.S. according to the latest reports. But ebooks are just the beginning–the detonator, in a way, of a decade-long disruption of the traditional publishing landscape.

Publishers and agents have certainly “adapted,” but have largely failed to carry innovation forward; distribution channels have been disrupted, but the creative process around books and the business model of publishing remain, for now, unchanged.

As it often happens when technology erupts in a non-tech-heavy industry, numerous opportunities have emerged for smaller players: namely authors, freelancers, and startups. To take advantage of the changing industry landscape, however, those small players will have to grasp the delicate mix of strong technology and intuitive user experience (UX) needed to succeed in a tech-unsavvy industry.

Publishers and “tech”

At the Frankfurt Book Fair last October, startup founder John Pettigrew from Futureproofs noted that “Until now, publishing companies, as any other big corporations, have been adopting several softwares that came with ‘how-to’ manuals.” Pettigrew was identifying the lack of technological innovation in the publishing industry, which continues to rely on the same old technology despite readers’ and authors’ changing needs.

Case in point? HarperCollins, considered the most forward-thinking publisher out there, has introduced Bookperk — its latest digital product that just happens to be a glorified email listserv. Distributors like Amazon, Kobo or B&N have been offering customers specials and customized recommendations via email for years. But publishers have have been held back by the limitations of outdated technology, along with an understandable reluctance toward investing heavily in digital (after all, most of their revenue still comes from print books and bookstores).

That leaves room for individual authors to take advantage of digital formats that bring control of the publishing value chain into their hands (i.e., selling directly to readers). And in turn, authors have created opportunities for startups by generating a market wholly nonexistent until the early 2010s: independent publishing services.

Addressing real needs with strong technology

Many startups that have thrown their hats in the ring have confronted one of two challenges: they know the market’s needs but are unable to build the technology, or they come with great technology but don’t know how to “geek it down.” Let’s give a couple of examples: Editorially and Net Minds.

Editorially was trying to solve an obvious problem: the vast majority of authors are still writing on Microsoft Word, software that’s not made for writing books and stories, and generates formatting issues when converting to EPUB and MOBI files.

Editorially created a beautiful collaborative writing tool and editing platform, and received VC funding most startups only dream of. But it went under because it “failed to attract enough users to be sustainable.” The technology behind Editorially was great, but for authors to embrace a new editing tool, it needs to look and feel like what they’ve been using for decades — only simpler and more effective. That’s what good UX means in the publishing world.

Net Minds had the opposite problem. It had the awesome vision that authors could share royalties with the editors, designers, and marketers who worked to bring their books to life. The founders had knowledge of the market, as well as a good network thanks to CEO Tim Sanders, a bestselling author and speaker. However, it failed for the same reason many startups out there fail: the founders didn’t get along. Or more precisely, the tech founders didn’t get along with the non-tech ones.

Creating the right UX

User Experience, in my opinion, is one of the top factors that will ultimately dictate any success or failure in this industry. Be it a marketplace, an online writing tool, or a distribution channel–and be it aimed at publishers, authors or other industry professionals–emerging tech needs to feel intuitive to its users.

One of the most impactful examples of UX taking the day is Smashwords, the startup founded by Mark Coker in 2008. “The rise of Smashwords is the story of the rise of self-publishing,” Coker wrote in August last year.

Smashwords basically allows authors to convert their manuscripts to the right electronic formats, then distributes them across all major e-retailers, aggregating the right metadata so authors only have to enter it once. Though some competitors offer more features and flexibility, Smashwords’ superior UX condemns these competitors to a narrower segment of the market.

There are few other industries out there as exciting and full of opportunities as publishing. It’s up to smaller players to inject the book industry with new vitality and carry on the disruption started by Amazon.

Ricardo Fayet is a co-founder of Reedsy, an online marketplace that enables authors to directly access the wealth of editing and design talent that has started leaving major publishers over the past few years. A technology and startup enthusiast, he likes to imagine how small players will build the future of publishing.

Beyond $0.99: New tips on ebook price promotions

The days when a single Kindle Daily Deal could catapult an unknown book up the New York Times bestseller list are probably behind us now. And big publishers are experimenting more and more with price promotions, so that a super-low price on a self-published ebook isn’t enough to help it stand apart. So as more and more and more ebooks are published, how have the mechanics of price promotions changed?

I moderated a panel on this topic at the Digital Book World conference last month. I learned a ton in interviews with my panelists and we weren’t able to get to all of it during the conference. Here are some of their most intriguing points and lessons learned.

It’s all about the shopping cart

The “cart” is an obvious feature of online shopping — but hasn’t always been a huge part of shopping for ebooks. If you’re reading on an e-reader, for example, you might be buying books one at a time. But Kobo learned the value of the cart at the end of the last year, when it added the ability for customers to buy several books simultaneously. In December the company ran a 3-for-2 ebook promotion for the first time, with great success.

“It was a price promotion, but it was really interesting because of what people were buying,” Nathan Maharaj, head of bookselling at Kobo, told me. “People were loading up on full-price ebooks, then often taking one that was already promotionally priced and dropping that in their basket, and that was the one they got free” — for example, buying a $14.99 ebook, a $15.99 ebook and a $2.99 ebook, with the $2.99 free. It wasn’t a “fight over how low can you go. This was completely different.” The promotion seemed to appeal to a different kind of customer — those who “haven’t been playing the cheap game very much.”

Email is still key

All of my panelists agreed that email works and is still perhaps the best way to notify customers about deals. In fact, that’s the business model of BookBub, a free daily email newsletter that alerts readers to books on sale across different categories. BookBub now has more than four million subscribers and CEO Josh Schanker was on the panel.

Publishers are now starting to get into the direct-to-consumer game with deals newsletters of their own. Digital publisher Open Road launched its newsletter Early Bird Books last year, which is sent to subscribers every weekday; Open Road chief marketing officer Rachel Chou said it’s been immensely successful, and seeing the deals that readers are especially interested in might guide future publishing decisions.

“Even in this age of Inbox by Gmail, email works,” Kobo’s Maharaj said. “It is by far the best way to get the word out about a promotion.”

A selection of recent BookBub deals.

A selection of recent BookBub deals.

Nonfiction is hard, but keep trying

Ebook price promotions are largely geared toward readers of fiction. “We’ve had some miserable luck with nonfiction” price promotions, Maharaj said. “My hunch is the nonfiction reader is differently oriented toward their reading material. Price is less interesting to them than, ‘Is this information I need now? Is this how I rule the dinner party? Do I need to master these concepts?’ … There’s a shift in emphasis in how the customer values it, but that’s a wild guess.”

At the same time, ebook price promotions are also less common for nonfiction. “If that’s your preferred area, it’s not a really good investment of your time to pay attention to things like daily deals and price promotions [because] the good stuff tends not to come up too frequently,” Maharaj noted.

Schanker echoed that the bulk of ebook daily deals up to now have skewed toward genre fiction (romance, science fiction and so on), but “more and more, our demographic is becoming younger and skewing more male. Nonfiction is an area that is a little bit more gender-balanced, in general … We’re seeing interest now from more and more publishers who don’t have any genre publications at all.”

Think beyond individual titles

BookBub’s Schanker said that price promotions tend to be especially effective for books in a series. A book on sale can be used “as a marketing device for the author or for another book.” Giving away the first book in a series works well, as does giving away a previous book by an author when that author is coming out with a new book. One publisher who worked with BookBub gave away the first book in a series free; it was downloaded more than 100,000 times — and in that same month, more than 15,000 people bought the second book in the series at full price.

Tesco sells Blinkbox Music to Guvera and kills off ebook platform

As part of its bid to get its financials back on track, U.K. supermarket chain Tesco has been dismantling and selling off its Blinkbox digital media business. First to go was the Blinkbox video streaming service, sold to ISP TalkTalk earlier this month.

Now it’s the turn of the Blinkbox music streaming service, which began life as We7 (jointly founded by music legend Peter Gabriel, no less) before Tesco bought it in 2012. My former colleague Robert Andrews accurately described We7 as “a much valued, indigenous U.K. online music player,” but now it’s owned by Australians – the music streamer Guvera.

According to a statement, the acquisition (terms for which were not disclosed) will give Guvera more technical expertise and help it expand into western Europe. The Spotify competitor is already available in 20 countries and comes preloaded in Lenovo handsets.

Meanwhile, the third plank in the Blinkbox platform – ebooks – looks like a write-off. British book retailer Waterstones had been in talks to buy that business off Tesco but, according to a Monday piece in The Bookseller, those discussions came to naught. Blinkbox Books, co-founded in 2012 by author Andy McNab as Mobcast, will now shut down by the end of February.

Secondhand ebook outfit Tom Kabinet races to purge illegal wares

The Dutch secondhand ebook marketplace Tom Kabinet has been ordered by a court to shut up shop this week, and is currently scrambling to get rid of possibly illegal stock so it can keep going.

As you may recall, Tom Kabinet started up in June 2014, predictably causing consternation in the country’s publishing industry — this is not how things currently work with digital goods, as terms tend to say people are buying only licenses to consume ebooks or audio files or what have you.

In July, a court refused to give the publishers an interim injunction against Tom Kabinet. However, on Tuesday the Amsterdam Court of Appeal produced a mixed ruling that said the site had to close down within three days or pay a daily fine of €1,000 ($1,160) – but also that Tom Kabinet’s business model appeared to be legal in principle.

Tom Kabinet’s justification for existing is the tantalising UsedSoft v Oracle ruling of 2012, in which the Court of Justice of the European Union (the EU’s highest court) ruled that customers who had bought a license for downloadable software could sell it on, just as if they had a boxed copy, no matter what the terms and conditions say.

The few European local courts that have subsequently tackled the issue have struggled with the implications of the ruling, particularly its reach. A court in Germany ruled in 2013 that it doesn’t cover ebooks and audiobooks. So far the Amsterdam courts have tentatively disagreed, saying that it’s certainly not clear that the CJEU ruling doesn’t apply to ebooks, and arguing that the CJEU may have to clarify its position in some future referral.

However, the appeal court did agree with the publishers this week about the fact that Tom Kabinet didn’t have sufficient barriers to people “reselling” illegally downloaded books through its platform. That’s why it told Tom Kabinet to shut down – much to the delight of the publishers — at least until it can shape up.

Therefore, Tom Kabinet co-founder Marc Jellema told me on Wednesday that the site is currently cleansing itself of all ebooks that it cannot prove are 100 percent legal. Tom Kabinet already watermarked the books it sells (which are all in the DRM-free ePub format) so that no-one can try selling the same thing twice through the platform, but now it’s going to have to ask sellers for paperwork.

“Technically there is no watertight way to differentiate between a legal and an illegal ebook,” Jellema said. “In order to guarantee only legally owned ebooks are on Tom Kabinet, we have to revert to ask a proof of purchase from our users. We are currently working to get that in place asap.”

This will probably have a significant impact on Tom Kabinet’s stock, though how much is yet to be ascertained. According to Jellema, so far Tom Kabinet has managed to convert more than 6 percent of its traffic to account sign-up and revenue, and its collection covers over two thirds of the Dutch Top 100.

“After the court ruling, that number is bound to change to a lower percentage,” he said. “We are now actively working on plans to get the number of relevant titles back on a respectable percentage.”

UMass Amherst will source textbooks from Amazon

Starting next year, students at UMass Amherst will get their text books not from a campus bookstore but from Amazon.com. The news was reported Tuesday in The Boston Globe

Under a 5-year agreement, [company]Amazon[/company] will get a 2.5 percent cut on e-books or their physical counterparts — available with one-day delivery —  sold via a dedicated storefront. Amazon told the Globe that students will save up to $380 a year.  Amazon will pay the school a minimum of $375,000, $465,000, and $610,000 in the first three years, respectively.

Amazon offers a similar program at Purdue and University of California, Davis.

This story was updaed at 3:59 p.m. PST to reflect that UMass, not Amazon, gets a 2.5 percent commission on books sold.

Ebooks in 2015: Dull new world

Ebooks are feeling a bit hungover heading into the new year. The 50 Shades of Grey exuberance of 2011 and 2012 feels long ago. The first seemingly viable ebook subscription services launched at the end of 2013 (Scribd, Oyster) and Amazon launched its own ebook subscription service, Kindle Unlimited, mid-2014.

The main difference between Kindle Unlimited and Scribd and Oyster — all of which cost around $10 a month — is that Kindle Unlimited has way fewer books that people have heard of. That’s because Scribd and Oyster have been able to attract big-5 publishers (HarperCollins, Simon & Schuster, likely soon Macmillan) that hope to shake Amazon’s dominance in the ebook market, so they see no reason to make their books available on Kindle Unlimited.

Kindle Unlimited (KU), meanwhile, is attracting a bunch of negative press coverage as indie authors become disillusioned by it. The general bad feeling has been floating around on the internet, particularly on the Kindle user forum KBoards.com, since Kindle Unlimited’s launch but hit the front page of the New York Times last Sunday.

“If you’re not an author with a slavish fan following, you’re in a lot of trouble,” self-published author Bob Mayer told the NYT’s David Streitfeld. “Everyone already has a ton of things on their Kindle they haven’t opened.

“What is now being proven is that market is not infinitely elastic,” publishing industry consultant Mike Shatzkin wrote on his blog on New Year’s Eve. “It seems likely that the low-priced indie authors are disproportionately affected by KU. Who bought indie author ebooks in the first place? The price-sensitive reader! Who switches from buying individual ebooks to the subscription service first? The price-sensitive reader! In other words, the subscription service offering appeals most to the same audience as those who read indie-published ebooks.”

Meanwhile, Nate Hoffelder at The Digital Reader wondered whether ebook subscription services are only a problem for indie authors or whether they will be a problem for traditional publishers as well. Of course, one of the main reasons that publishers feared ebook subscriptions in the first place was that they worried such services would cannibalize individual paid sales (the Spotify problem, in other words). But most of the disgruntlement over ebook subscriptions is focused on Kindle Unlimited and is coming from indie authors right now.

In the meantime, take a look at this chart in a year-end post by Mark Coker, the CEO of self-publishing site Smashwords:

smashwords growth 2008-2014

Smashwords lets its authors distribute their books to Scribd and Oyster. Coker mentions Kindle Unlimited, too:

“Our broad distribution network helped authors and publishers diversify their exposure to an industry-wide slowdown in ebook retailing…Authors who fully distributed their titles with Smashwords were partially insulated from the dramatic sales drops many Amazon authors reported following the introduction of Kindle Unlimited.”

Coker obviously doesn’t mention the word “glut,” though it certainly could be a caption for the chart above. In 2015 we’ll have to see whether “glut” largely continues to be seen as a Kindle Unlimited problem. But if more people aren’t buying and reading more books, it will be a problem for most authors and for all ebook subscription services.

Macmillan, too, returns to agency pricing with Amazon

Book publisher Macmillan, like Simon & Schuster and Hachette before it, has signed a new contract with Amazon and will return to agency pricing on its ebooks starting in 2015. In a public letter to authors and agents, Macmillan CEO John Sargent also said Amazon’s dominance in the ebook marketplace is a problem and that the publisher will experiment with ebook subscription models as a way to diversify its revenue streams.

Macmillan’s settlement with the Department of Justice in the [company]Apple[/company] ebook pricing case required it (and the four other settling publishers) to allow retailers to offer unlimited discounts on its ebooks for two years. Now the two years are up and publishers are returning to agency pricing agreements with Amazon. Under agency pricing, the publisher sets an ebook’s price and the retailer takes a commission. The negotiations between Amazon and publisher Hachette were highly fraught and public, but Macmillan’s were much quieter.

Sargent wrote:

“Late last week Macmillan reached an agreement with [company]Amazon[/company] on a multiyear deal for print books as well as a multiyear deal on the agency model for e-books, starting on January 5, 2015. All our other retailers will also be on the agency model, leaving Apple as the only retailer who is allowed unlimited discounting. Irony prospers in the digital age.

This odd aberration in the market will cause us to occasionally change the digital list price of your books in what may seem to be random fashion. I ask for your forbearance. We will be attempting to create even pricing as best we can.”

Apple can offer unlimited discounts on ebooks because, as a result of the settlements, publishers weren’t allowed to negotiate new contracts with it for five years. Macmillan and Simon & Schuster are appealing that decision and were in appeals court to argue their position last week.

In his characteristically forthright letter, Sargent also noted that

“In reaching agreement with Amazon, we have not addressed one of the big problems in the digital marketplace. Through great innovation and prodigious amounts of risk and hard work, Amazon holds a 64% market share of Macmillan’s e-book business. As publishers, authors, illustrators, and agents, we need broader channels to reach our readers.”

As a result, Sargent wrote, Macmillan will be testing ebook subscriptions: “We plan to try subscription with backlist books, and mostly with titles that are not well represented at bricks and mortar retail stores.” While Sargent didn’t say which companies Macmillan will be working with, Oyster and Scribd are likely candidates.

Judges question Apple ebook verdict and Amazon’s role

In a new twist in the long running antitrust case against Apple, an appeals court on Monday cast doubt on the Justice Department’s theory that the company brokered an illegal conspiracy among book publishers, and asked instead why the government’s focus has not been on Amazon.

The 90-minute hearing, which took place at the Second Circuit Court in Manhattan, represented a major shift in momentum in a case that has until now gone completely against Apple. On Monday, the three appeals court judges suggested that District Judge Denise Cote might have been too quick to conclude that Apple’s pricing arrangements with five publishers violated antitrust laws.

“Would it not matter that all those people got together to defeat a monopolist? It’s like the mice that got together to put a bell on a cat,” U.S. Circuit Judge Dennis Jacobs told the Justice Department’s lawyer, Malcolm Stewart.

The cat in question here is [company]Amazon[/company], which controlled over 90 percent of the ebook market in early 2010 when Apple and the publishers introduced “agency pricing,” which lets publishers set an ebook’s retail price and pay the publisher a commission. Amazon had previously used the wholesale model for all ebooks.

On Monday, Apple’s lawyer Theodore Boutros urged the appeals court to regard the pricing tactic as a legitimate business arrangement used to “come into a market dominated by a monopolist.”

The judges appeared to give weight to this suggestion, and to accept Boutros’ contention that a brief price spike, which damned Apple and the publishers before Judge Cote, should not result in an automatic finding of illegal price-fixing. Instead, Boutros said the price spike was limited only to the five publishers, and that the overall effect of Apple’s entry to the ebook market dramatically benefited consumers since many more players were willing to enter the market.

The appeals court judges also expressed skepticism over Stewart’s repeated attempts to liken the agency pricing arrangements to a criminal drug conspiracy in which [company]Apple[/company] was the driver.

“When you’re dealing with the illegal drug industry, you’re looking at one of the few areas where the law doesn’t look favorably on new entrants,” said Circuit Judge Debra Livingston.

$450 million settlement at risk

If the appeals court decides to disturb Judge Cote’s verdict, their ruling would have an immediate ripple effect on a related legal proceeding, involving class action lawyers and state governments, in which Apple has agreed to pay out $400 million to consumers and another $50 million in legal fees.

But in an unusual arrangement, the $450 payout is contingent on the Second Circuit upholding the verdict. If the appeals court judges remand the verdict, the payout could drop to a total of $70 million and, if they reverse it entirely, the payout will be nothing.

At the hearing, Boutros suggested that the appeals should overturn Court’s ruling as a matter of law, or at least remand it to a different judge.

The major legal issue at stake turns turns on competing antitrust doctrines known as “per se” versus “rule of reason” — which specify how courts should assess situations in which companies are found to have colluded on a given business issue.

The appeals court, however, may be hard-pressed to reverse Judge Cote, who found in a 160-page decision that Apple was liable under either standard.

In the event the appeals court does remand or reverse, its finding is likely to turn on whether Apple and the publishers’ behavior was justified in the context of what Judge Jacobs called a “new entrant breaking the hold of a monopolist” using “arguably predatory” tactics.

For the publishers, the outcome will not effect their liability since they have already agreed to pay out millions as a result of voluntary settlements.

A five-year cooling off period

A portion of Monday’s arguments were taken up by lawyers from Simon & Schuster and Macmillan, which are two of the five publishers that were caught up in the antitrust investigations (the others are Hachette, HarperCollins and Penguin, which has since merged with Random House).

Macmillan and Simon & Schuster were there to object to a part of Judge Cote’s order in which Apple must engage in a five-year “cooling off period” with the publishers, and engage in only arms-length negotiations. For practical purposes, this means that the publishers will not be able to limit Apple’s ability to engage in discounting, which could in turn complicate their negotiations with other retailers.

The publishers claim this five-year provision is unfair since they are this month coming to the end of their own two-year settlements with the government. They claim that the Justice Department is, in essence, reneging on its earlier agreement with them since the five-year arrangement with Apple will have knock-on effects in their negotiations with other ebook retailers.

The publishers asked the judges to excise a part of Judge Cote’s order that applies the five-year cooling-off period and, if necessary, to make a special preliminary decision on this matter so their pricing strategies are not compromised.

Finally, the appeals court judges also mulled what to do with the special monitor that Justice Cote appointed to oversee Apple’s compliance. The appointment has drawn criticism because the monitor selected by Cote was a friend of the judge who lacked antitrust experience and hired a special advisor at extra cost.

The appeals court said it will reserve its decision, meaning a ruling is likely to come sometime in 2015.